Redefining success: The rise of absolute return investing

ILLUSTRATION BY RUTH MACAPAGAL

MANILA, Philippines — In the dynamic landscape of the Philippine stock market, a notable transformation is underway as absolute return investing emerges as a formidable challenger to the established benchmarking methodology. This paradigm shift is a response to the escalating demand for sustained profitability among investors.

Unlike the conventional benchmarking approach that relies heavily on tracking the performance of the Philippine Stock Exchange Index (PSEi), absolute return strategies are engineered to deliver consistent positive returns irrespective of market fluctuations.

Successful execution of absolute return strategies demands a heightened acumen in financial analysis and an understanding of the anticipated trajectory of individual stock prices. These strategies are characterized by their adaptability to diverse market conditions and their adeptness at identifying lucrative opportunities.

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Notably, during periods of market volatility or downturns, absolute return funds exhibit a remarkable resilience in profit generation.

This resilience is rooted in their exhaustive scrutiny of a broad spectrum of 281 traded companies, enabling them to navigate market dynamics with greater efficacy compared with their benchmarked counterparts, which typically have a narrower focus on fewer than 40 companies.

Delicate equilibrium

Central to the philosophy of absolute return investing is the recognition of the delicate equilibrium between supply and demand for shares, which exerts a profound influence on stock prices and, consequently, investment outcomes.

Recent data from the Philippine Stock Exchange underscore the need for absolute return strategies, with 84 (of the 281) stocks demonstrating positive investment performance over the past five years.

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Among these, 37 stocks have surpassed an annual return of 10 percent, with 25 stocks exceeding an annual return of 14.87 percent. In stark contrast, the PSEi has witnessed an annual loss of 1.1 percent over the same period. Consequently, portfolios or funds tethered to the PSEi often mirror its losses, highlighting the limitations of benchmarking strategies during market downturns.

The track record of absolute return investing speaks volumes, with portfolios embracing these strategies delivering impressive profits, averaging 19.6 percent annually since inception. This remarkable performance underscores the efficacy of absolute return strategies in achieving long-term financial objectives.

In the Philippine context, absolute return investing presents a compelling alternative to benchmarking strategies, particularly for proactive and prudent investors seeking sustained wealth accumulation amidst market uncertainties. —contributed INQ

The author is a seasoned portfolio manager, widely recognized for his insights and expertise in investing. He is known for his approach to absolute return investing, and the portfolios that adhere to his investment style have delivered annual returns of 19.6 percent per annum since inception. Feedback at [email protected].